Each month, you pay your electric bill, but do you really understand what you are paying for? And do you know that your current electricity supplier is not your only choice?
By exploring your options and making informed choices, you can save your company a considerable amount of money, says Mike Wise, co-chair of the Energy Practice Group at McDonald Hopkins LLC.
“Because Ohio has a deregulated electricity environment now, almost invariably you can get a much cheaper price for your electricity by going out and shopping for it, rather than just accepting whatever electricity pricing is provided by your current utility,” says Wise.
Smart Business spoke with Wise about how to get the most for your money when buying electricity and how to find the best supplier to meet your needs.
How can a business owner get started saving money on electricity?
The market really opened up in June 2009, and although the major consumers of electricity are aware of the opportunities, smaller and mid-sized companies are just beginning to realize those opportunities.
The first thing to do is to look at your electric bill and understand how much electricity you use. Your bill will also tell you what you are paying per kilowatt hour for your electricity. If you want to go through the process internally, start with the Public Utilities Commission of Ohio Web site to start looking at pricing from other suppliers, or your general counsel can help shepherd you through the process. In relatively short order, you should be able to get a sense of what you are leaving on the table.
Alternatively, you can get outside help. An outside adviser can use an electronic request for proposal process, which is very transparent and forces the generators to provide their absolute best pricing. An adviser will profile your company’s electricity use. Based on that profile, an electronic RFP is created and posted online, so that electricity generators that are serving Ohio are able to bid on it. The process takes about 10 to 14 days start to finish.
An adviser is a great resource for companies that do not want to take the time to do it themselves or that do not feel like they have the aptitude to get their arms around the process.
But whether you address alternative electricity procurement on your own or with the help of an adviser, the important thing is to address it, because even the smallest company can benefit from shopping around.
How often should you review your usage and pricing?
Generally a business will contract with a generator for six months to two years, although there are variable pricing players that will price month-to-month. However, most business owners want more predictability than month-to-month pricing provides.
Reviewing your electricity usage and pricing is definitely something you should do periodically as your current contract nears its expiration. Prices fluctuate daily and can fluctuate dramatically from week to week, so it can be difficult to know when to make the move. An adviser can help you look at historic trends and identify long-term opportunities that can help you make that decision.
You want to try to take advantage of the market, but you also don’t want to go through the effort of doing this every month.
And even after you have locked down a price with a contract, you should make it a habit each quarter of looking at both your gas and electricity usage and pricing to make sure that you are taking advantage of all the opportunities that are available.
What mistakes do businesses make when shopping around for electricity?
Too often, business owners start looking around and then accept the first lower price instead of looking at all their options. It is not difficult for any vendor to present a savings of 5 to 10 percent to a client. But if you are patient and thoughtful about the process, there are additional savings available, with average savings of 10 to 20 percent.
Even if the savings are just tenths or hundredths of a cent per kilowatt hour, if you are using 100 million kilowatts a year, that can add up to a savings of tens of thousands of dollars.
Also, too many companies are unwilling to look beyond their current supplier when seeking a lower price. No matter where you are in Ohio, your current supplier will take the first shot at providing better pricing for you. After that conversation, it is often difficult for a company to pass up that offer and reach out to the rest of the supplier community.
It is well worth the extra week or two to make that effort, particularly if you have someone who can very quickly get multiple pricing options for you.
What do you see as the future of the market?
It is chaotic right now because of pricing fluctuations and all of the new players in the market, and I do not see it getting anything but more chaotic over the next few years as there are more aggressive renewable portfolio standards, which require a certain amount of power consumed in Ohio to come from a renewable source.
In addition, there is the potential for carbon trading to become part of the mix. If the U.S. passes an energy bill that contains a cap-and-trade system for carbon, it will become more difficult for companies that are in a high-emissions business to expand, because they will need to provide some type of offset for the increased emissions that expansion would entail.
It is important for businesses to stay up on what is going on in Washington because if a cap-and-trade bill is passed, it will be a game changer for a lot of businesses.
Mike Wise is the co-chair of the Energy Practice Group at McDonald Hopkins LLC. Reach him at [email protected] or (216) 430-2034.